Gulf Keystone today provides an update on its ongoing exploration and appraisal programme in the Kurdistan Region of Iraq, which includes the Shaikan block, a major discovery with independently audited gross oil-in-place volumes of between 8 billion barrels to 13.4 billion barrels calculated on the P90 to P10 basis, with a mean value of 10.5 billion barrels.

Shaikan-4 Appraisal Well

The well testing programme for the Shaikan-4 appraisal well, drilled 6 km to the west of the Shaikan-1 discovery well, remains ongoing, with six out of seven planned tests completed to date. Portions of major intervals, such as the Kurre Chine, Butmah, Mus, Alan and Sargelu formations will continue to be tested and so far aggregate flow rates in excess of 14,000 barrels of oil equivalent per day ("boepd") have been achieved. Portions of the well that appear to be high quality oil reservoir on the electric logs, and where proven commercial flow rates were achieved by testing previous wells, will not be tested.

The first five tests have been conducted in the northern "footwall" - on the lower side of the inclined fault bounding the Shaikan structure. This is the first occurrence of flow from the footwall and proves an extension of the Triassic and Jurassic reservoirs outside the central part of the structure. The latest test (Test 6) is being conducted in the "hanging wall" (the upper side of the inclined fault) from a new reservoir in the uppermost Sargelu formation which had not been previously flow tested. The test is ongoing and rates in excess of 4,000 boepd have been recorded.

Shaikan-5 Appraisal Well

After drilling the Shaikan-5 appraisal well, 6 km to the north-east of the Shaikan-2 appraisal well, to the depth of 1,876 metres in the Jurassic, it became necessary to drill a sidetrack due to a portion of the drill string becoming stuck in the hole. The sidetrack operations were successfully performed at the depth of 1,370 metres, after which the Shaikan-5 drilling operations have resumed below 1,730 metres, to continue drilling to the estimated total depth ("TD") of 3,500 metres, subject to technical conditions.

Shaikan-6 Appraisal Well

The Shaikan-6 appraisal well, 9 km to the east of the Shaikan-2 appraisal well, is currently drilling a 12.25" hole at the depth of 2,058 metres in the Jurassic. The well will drill to the estimated TD of 3,800 metres subject to technical conditions.

Shaikan-7 Exploration Well

The tendering process has commenced for a rig to drill the Shaikan-7 exploration well, which will target the lower Triassic and the Permian, the deepest prospective undrilled horizons of the Shaikan structure.

Shaikan Extended Well Test

As part of the ongoing Extended Well Test ("EWT") on the Shaikan block, the output from the Shaikan-1 & 3 EWT facility reached 137,060 gross barrels of oil between 1 January and 6 March 2012. Due to unprecedented cold weather and poor visibility, combined with work required to connect an additional 20,000 barrel storage tank, the average test production between 1 January and 25 February was 2,077 gross barrels of oil per day ("bopd"). Since 25 February test production has averaged 5,641 gross bopd.

Shaikan Field Export Pipeline Project

On 6 March 2012, Gulf Keystone initiated a tendering process for the export pipeline site construction and installation for the Shaikan field export pipeline project.

As part of the ongoing tendering process for the materials procurement for the Shaikan field export pipeline project, which was announced on 12 January 2012, bids are currently being received with the technical and commercial evaluation to follow.

Gulf Keystone is the Operator of the Shaikan block with a working interest of 75 per cent and is partnered with Kalegran Ltd. (a 100 per cent subsidiary of MOL Hungarian Oil and Gas Plc.) and Texas Keystone Inc., which have working interests of 20 per cent and 5 per cent respectively.

Akri-Bijeel Block: Aqra/ Bekhme Anticline Resources

Following the completion of the Bekhme-1 exploration well testing programme in December 2011, after the well reached TD at 5,000 metres in the Triassic, Gulf Keystone has received results of an independent evaluation of estimated petroleum resources for the Aqra/Bekhme anticline on the Akri-Bijeel block by Dynamic Global Advisors (DGA), independent Houston-based exploration consultants.

The DGA report, based on the Bekhme-1 wireline logging data and 2D seismic data, while recognizing the fact that no hydrocarbons had been produced to surface, has indicated a significant range of between 2.5 billion barrels and 5.4 billion barrels of gross oil-in-place volumes calculated on the P90 to P10 basis, with the mean resource estimate for the reservoirs in the Aqra/ Bekhme anticline of 3.9 billion barrels. While this range of resource estimate is significant, a considerable portion of the oil resource is likely to comprise heavy oil. Further evaluation would be required as to whether the oil is commercially recoverable.

DGA's previous assessments of assets on behalf of Gulf Keystone included independent evaluation of the Shaikan discovery, including two major upgrades of the gross oil-in-place volumes announced in April and November 2011, as well as a preliminary evaluation of the Sheikh Adi resources (1 billion barrels to 3 billion barrels calculated on the P90 to P10 basis) announced in August 2011.

Akri-Bijeel Block: Aqra-1 Appraisal Well

The first appraisal well to assess the Bijell discovery on the Akri-Bijeel block, is being drilled 8 km to the north-west of the Bijell‑1 discovery well and 26 km to the west-northwest of the Bekhme-1 exploration well. After reaching the depth of 989 metres, the Aqra-1 drilling operations have been temporarily halted in order to repair the rig following a lightning strike. Once the drilling operations have resumed, Aqra-1 will drill to an estimated TD of over 4,700 metres in the Triassic subject to technical conditions.

Gulf Keystone has a 20 per cent working interest in the Akri-Bijeel block, operated by Kalegran Ltd., a 100 per cent subsidiary of MOL Hungarian Oil and Gas Plc., which holds 80 per cent working interest in the block. The Operator's P50 resource estimate for the Bijell discovery is 2.4 billion barrels of oil-in-place, while the ongoing 2012/13 exploration and appraisal programme is targeting existing and identified hydrocarbon prospects in the Akri-Bijeel block.

Ber Bahr-1 Exploration Well

After the setting of 7" casing at the depth of 3,343 metres in the Triassic, the first exploration well on the Ber Bahr block is drilling at the depth of 3,347 metres.

Gulf Keystone has a 40 per cent working interest in the Ber Bahr block, operated by Genel Energy, which holds a 40 per cent working interest in the block. The Kurdistan Regional Government has a 20 per cent carried interest in the Ber Bahr Production Sharing Contract. The Operator's resource estimate for the Ber Bahr block is 1.5 billion barrels of oil equivalent-initially-in-place.

John Gerstenlauer, Gulf Keystone's Chief Operating Officer commented:

"We believe that these new results of the ongoing Shaikan-4 well testing programme are excellent, confirming our early understanding that this well may prove to be our best one to date in the Kurdistan Region of Iraq. We anticipate that future test production from Shaikan-4 will significantly increase our existing production level, which reached 6,970 gross barrels of oil per day on 4 March 2012. In parallel to the continuing increase in the test production of the Shaikan crude, our work on the Shaikan export pipeline project is progressing. In addition to a number of important operational developments on the Shaikan block, we are pleased to report on the progress in the Ber Bahr-1 exploration well drilling activities and to present results of an independent report by Dynamic Global Advisors on estimated resources for the Aqra/ Bekhme anticline on the Akri-Bijeel block. The substantial remaining potential of the Akri-Bijeel block is currently being targeted by the Operator's 2012/13 wide-ranging exploration, appraisal and early development programme."